CHICAGO – Paul Whitmore was direct and blunt in his assessment of the state of payments in the U.S. when he spoke at this week's Chicago Payments Symposium at the Federal Reserve Bank of Chicago.
"I've been sitting here for two days, wondering how did you get yourself into this mess?" says Whitmore, president of Hong Kong-based financial services provider Consultancy Associates Ltd.
That "mess" includes an increasingly crowded mobile payments landscape taking place at the same time as the U.S. conversion to EMV smartcard technology to replace the decades-old magnetic-stripe cards. It also involves a mounting number of cyber attacks on financial institutions, merchants seeking more control over payment data, and consumers being uncertain about whether they would rather trust a bank or a tech company with their personal information.
If those red flags don't cause enough industry hand-wringing, another major worry looms — uncertainty about federal regulations and what, if anything, could follow in the footsteps of the Dodd-Frank Act and its Durbin amendment altering interchange rates on debit transactions and changing the rules on network exclusivity.
In addition, the payments industry continues to contemplate a payments world in which consumers and merchants alike demand speed in transaction settlement, the key element needed to effectively displace cash and checks.
Sandra Pianalto, president and CEO of the Federal Reserve Bank of Cleveland, says the establishment of the Check 21 law, enacted in 2003, provides an example of how industry collaboration regarding transaction speed can spark progress.
While Check 21 facilitated the spread of check imaging, it left questions unanswered about the speed of automated clearing house transactions, which generally take a full business day to clear.
Pianalto says the United Kingdom developed the Faster Payments Service four years ago, providing a complement to Britain's ACH that speeds clearing times to within an hour or two, rather than the following business day. The UK's example leaves hope that a collaborative U.S. could do the same, Pianalto says.
But in Whitmore's view, the U.S. has simply "kept things alive way beyond their expiration date." These outdated technologies include magnetic-stripe cards, paper checks, various network operations and security measures.
As host of the event, leaders of the Federal Reserve Banks made it clear they want to be partners with all players in the future development of payments.
The U.S. payments industry doesn't need to draft a new "policy" on what needs to take place to meet current and future challenges, Whitmore says. "I think you need a strategy that shows where you are now and where you want to be," he adds.
Such a strategy doesn't need a timeline, he says, but those collaborating on issues have to understand that progress "is never a straight line, rather it is always zig-zagging."
But if that zig-zagging results in no industrywide agreements taking place, the
U.S. payments industry leaders may replicate the problems of Europe, says Liz Oakes, principal advisor for KPMG in London.
"You don't want to go down the same path as Europe in its decade-long attempt to establish a Single Euro Payment Area throughout most of the continent," Oakes says.
The payments industry in Europe failed to step up and come to agreements and ultimately could not reach certain deadlines, Oakes says.
"It brought on far more government regulations," she adds. "You want to take control of your situation and collaborate because it will give you a much better chance."
John Carlson, executive vice president of the Financial Services Roundtable, says the industry "can't ignore the significant trends" taking place in payments, but the many differences in payment types with "so many policy objectives attached" complicates matters.
Roy Deciccio, managing director of JP Morgan Chase & Co., says the industry should monitor the progress of ISO 20022, the financial services messaging standard used by payments systems globally for corporations to integrate payables and receivables with banks' systems.
ISO 20022 could be a basis for helping the industry establish "a thoughtful, holistic view" of the payments marketplace, Deciccio says.
Julie Conroy McNelley, senior analyst and fraud expert with Boston-based Aite Group, tried to encourage those in payments not to get swallowed up in the notion of "what we are doing wrong."
As a way to move forward, the industry as a whole needs to identify the top five "points of pain" facing the industry and develop plans to address them, McNelley adds.
"Most consumers say their financial institutions are doing a good or great job [in handling and securing payments]," McNelley says. "We do a lot right and we need to keep moving those best practices forward."